London's Court Of Appeal has overturned a case in which alleged oral misrepresentation by a structured product sales official was held to have over-ridden written terms and conditions of the instrument. The result is a huge relief to derivative sales officials and lawyers, after an initial case in the summer cast doubt over the power of thorough documentation to prevent misselling allegations.
The Court of Appeal reversed the original decision, Peekay Intermark Harish Pawani vAustralia and New Zealand Banking Group, concluding the terms and conditions of the documents were clear enough. If Harish Pawani, the counterparty, had read them he would have understood the investment was different from what he initially believed. The Court also said Pawani signed the documents not because of what the sales representative told him but because he assumed the documents corresponded to the description he had previously been given. The conclusion was that there was no actionable misrepresentation.
In the original case last summer, Richard Siberry, sitting as a deputy high-court judge, ruled the contract was void because the investment had been fundamentally misrepresented during the sales process, and Peekay was awarded damages (DW, 9/9). While some lawyers warned there could be a further appeal by Peekay, Pawani confirmed to DW he will not take the Court of Appeal's decision to the House of Lords.
The decision last week is important, said Jonathan Kelly, partner at Simmons & Simmons, because it restores certainty to the structured products market and to the documentation of structured notes. He added, however, "It's not a charter for sloppy drafting. It has got to be clear and precise."
One institutional derivatives sales head said the ruling is also a timely one, given increasing focus from regulators such as the Financial Services Authority on the responsibilities of structured product sellers. The FSA highlighted potential misselling of structured investments through third-party distributors in its Financial Risk Outlook 2006.
